The sharing economy: legal fragmentation might lead to harmonization of the law

Questions arise from recent activity by the European Commission that suggest a possible change in law concerning the sharing economy is contemplated.  To begin it is necessary to consider the definition of the sharing economy, then identify the EU’s policy activities to date in this area.  Next, the recent activity is described, namely, a theoretical study that the European Commission included in a recent tender.  This naturally raises questions that it is suggested need to be addressed.  The result of addressing those questions may lead to changes in EU law and so EU Member State laws as regards the sharing economy.  Given the policy and rule-setting influence the EU has on the global regulatory environment and the size of the EU economy, such changes may be reflected in changes in other countries.  Alternatively, businesses active globally may decide it is more efficient to adopt a single set of global rules for their agreements that are consistent with the EU rules.

The sharing economy, sometimes called the collaborative economy, covers a great variety of sectors and is rapidly emerging. Many people have already used, or are aware of sharing economy services, which range from sharing houses and car journeys, to domestic services. The sharing economy provides new opportunities for citizens and innovative entrepreneurs.   One of the first issues to address when considering the sharing economy is whether there is a common understanding of what constitutes the sharing economy.

What is the sharing economy?

A definition of the sharing economy is “business models where activities are facilitated by collaborative platforms that create an open marketplace for the temporary usage of goods or services often provided by private individuals. The collaborative economy involves three categories of actors: (i) service providers who share assets, resources, time and/or skills — these can be private individuals offering services on an occasional basis (‘peers’) or service providers acting in their professional capacity (‘professional services providers’); (ii) users of these; and (iii) intermediaries that connect — via an online platform — providers with users and that facilitate transactions between them (‘collaborative platforms’). Collaborative economy transactions generally do not involve a change of ownership and can be carried out for profit or not-for-profit”.[1]

As the European Commission recognises in offering such definition “The term collaborative economy is often interchangeably used with the term ‘sharing economy’. Collaborative economy is a rapid evolving phenomenon and its definition may evolve accordingly” (supra, footnote 7).

Many early examples of the sharing economy were person-to-person communities (“P2P”).  Such communities, which effectively self-regulate, do not operate via a third-party platform.  However, the existence within a P2P community of a third-party platform (an intermediary or market place) creates a fundamental distinction for two main reasons.  First, many P2P communities are not-for-profit communities. The existence of a third-party business to create and operate a platform is typically on the basis that the business seeks to make a profit.  Second, where a third party platform (market place) is involved, it is commonly the case that the market was established by the platform.  Consumers (or businesses) have joined the nascent community and by doing so create the market.  The consequence is that the existence of a business as the platform/intermediary/market place creates a B2C situation.

One interesting case to evidence this further is the example of Marriot Hotels US. It was faced with underutilized meeting rooms and lobby spaces at hundreds of its hotels. In 2012 it partnered with LiquidSpace – a sharing economy start-up – to help Marriott offer meeting rooms for short-term rentals through an app-based platform.  The scheme was tested then rolled-out to 432 hotels in the US and Canada.  The outcome was regarded as successful given that 18% of customers that booked on the app ‘Workspace on Demand’ were new to Marriott US, and Marriott US had developed an incremental revenue stream.[2]

From a legal analysis to identify the asset (a meeting room) as being shared seems to stretch the definition of sharing, because otherwise all hotel businesses have been participants in the sharing economy.  Rather, it seems, Marriott US was able to address a latent demand through a new distribution channel (the app).  At no time did Marriott US in a legal sense share the asset differently to how it would normally have rented the asset (room).

Despite the above legal analysis, this example is generally regarded as and commented on as a good example of the sharing economy.

Moreover, as identified by the Centre for European Policy Studies “some companies operate hybrid business models that fall both inside and outside”[3] the definition of sharing economy. This is for instance the case of Amazon: while services such as the crowdsourcing ‘Mechanical Turk’ are included in the sharing economy, the e-commerce platform falls outside the definition.

Given the loose definitions of  ‘sharing economy’ many have adopted a  flexible and open approach to the topic.  An example in this regard, is of the sharing economy landscape that has been identified by EY in its own research into this area, as shown in the diagram below.

Sharing Economy Landscape

(Source: EY)

The work of the EU in this area

The European Commission, in particular Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, has engaged in the production of a number of studies, surveys and other activities such as workshops, to increase its understanding and knowledge of the sharing economy, and to inform EU citizens and businesses through publications and other outreach activities.

A key communication was issued in 2016 by the European Commission[1]. It identified (among other initiatives) that the European Commission intends to establish a monitoring framework. One of the monitoring tools would include “ongoing mapping of regulatory developments in Member States”.

A number of analytical papers were published, including on some of the most relevant regulatory and economic aspects. In relation to the regulatory aspects, there are two papers addressing liability issues by collaborative economy business models (namely, one on the short-term accommodation rental sector (2016)[2], the other on the professional services sector (2016))[3].

In 2018 the European Commission produced a number of studies.  The studies undertaken were:

►     The collaborative short-term accommodation sector:  The study aims to provide a description and preliminary assessment of the regulatory environment in EU countries while taking into account the dynamics and on-going changes in the sector[4].

►     Monitoring the business and regulatory environment:  This study assesses the business environment in the collaborative economy across 6 themes (accommodation, transport, finance, public administration, business support and alignment) in EU countries. The study developed a ‘Collaborative Economy Index’ to measure and benchmark the openness of regulatory environments and the supportiveness of administrative actions[5].

►     Monitoring the economic development of the collaborative economy:  This study measures how developed the EU collaborative economy is in the transport, accommodation, finance and online skills sectors. The size of the collaborative economy was estimated at €26.5 billion (0.17% of EU GDP in 2016) and provides work for 394,000 people (0.15% of EU employment)[6].

►     Platform workers in Europe:  This Joint Research Centre (JRC) Science for Policy report helps to estimate the scale of platform work, outline the main characteristics of platform workers, their working conditions and motivations, and describes the type of services provided through digital employment platforms. It is based on a survey of over 32,000 people across 14 EU countries[7].

In October 2018, the Commission organized a high-level conference, ‘Collaborative economy: opportunities, challenges, policies’ to take stock of policy, regulatory and market developments’. At the conference, then EU Commissioner Bieńkowska affirmed her conviction that the European single market must help new business models. The European Commissioner called for common answers to common issues to decrease the current degree of regulatory fragmentation.  Also noteworthy is that at the conference a panellist on policy and market developments, Mr Mazzella (founder and President of BlablaCar) emphasised that it is urgent for the EU to address regulatory fragmentation in the EU so that businesses can scale up and Europe is not left further behind the US and China in digital technologies and services. He urged the European Commission to be more active in promoting market harmonization[8].

Most recently on 19 February 2020 the European Commission presented the strategy document, ‘Shaping Europe’s Digital Future’. In relation to one of the three key pillars – a fair and competitive economy – the Commission identifies the need for a “frictionless single market, unhampered by diverging local or national regulations”. [9]

As the European Commission’s work evolved in the identification of regulatory issues, while at the same time understanding the benefits that the sharing economy has brought, several issues were brought to light. For example, in some countries there are price restrictions in relation to the transport sector, while in the accommodation sector there are differences in registration and authorisations. To an extent, EU Member States have sought to address those issues through laws, including mandatory laws applicable to contracts in the sharing economy. Such mandatory laws are additional to those laws that pre-existed the development of the sharing economy.  For example, most Member States have had for many years regulations concerning insurance and safety issues for drivers and vehicles carrying fare-paying passengers; in relation to accommodation there are high levels of fire safety rules that apply to hotels but do not apply to domestic homes that rent out spare rooms to paying guests. In addition, such pre-existing laws are applied to the sharing economy but they may not be fully appropriate or adequate given its particular characteristics.

In this regard, the European Commission’s study to monitor the business and regulatory environment affecting the collaborative economy in the EU (2018) is informative (supra.) and the following paragraph is noteworthy:

‘… there is no single approach for creating a favourable regulatory environment for the collaborative economy, as most regulations affect both conventional and collaborative economy actors. Clear definitions for collaborative economy services along with a distinction between peer and professional activities (e.g. through thresholds) facilitate collaborative economy activities.

Market access requirements proportionate to smaller and less frequent economic transactions, and enforcement measures tailored to collaborative providers, are additional encouraging factors. The provision of guidance on taxation and employment rules and support services targeted to the collaborative economy, although beneficial, are not commonly available. The alignment of regulatory frameworks within (and across) Member States is also important and it occurs more frequently in the transport than in the accommodation theme’ (page 9 of the study).

A similar preliminary conclusion has been reached by the Centre for European Policy Studies, who has identified that “the complex, often legally contradictory regulations, fragment the Digital Single Market”.[10]

The European Commission’s description in a call for a study

In a call for tenders for a framework contract the Commission (DG JUST) called on prospective tenderers to respond to a theoretical study.[11]  In the call for tenders the Commission identifies that “Beyond the systematic work to examine transposing legislation, the European Commission remains responsible to monitor that national measures, whatever nature they are (legislative, administrative or judicial nature), comply with obligations set by the Treaties and by secondary European Union legislation, and remain in line with the case law of the European Union Court of Justice” (section 2.2.3 of the call for tenders).  The European Commission continues “research on national legal frameworks applicable to policy areas of Justice and Consumers contributes to a better understanding of the existing situation in the EU in the respective areas. It can help the Commission assess whether potential differences or gaps in national laws may constitute a driver for problems or obstacles and to examine possible need for action at EU level” (supra.).  Finally, the European Commission identifies that “In addition, in order for DG JUST to identify whether and to which extent market obstacles or failures may result from legal fragmentation or gaps in national legal frameworks, a comprehensive overview/mapping of national rules applicable in specific sectors is essential.”

Given these statements this author considers the essential purpose (telos) of the case study is to screen the national laws to determine differences or gaps with the implication that there may be a need for action by the European Commission due to the current situation creating problems or obstacles (perhaps suggesting a harmonisation measure), and inconsistency with EU law or principles (including the principles of the Single Market) which may need to be addressed.

The focus of the case study is on mandatory laws, although this raises the question of what are mandatory laws?

The strict definition of mandatory laws are those that cannot be avoided, but often the definition includes laws that can be avoided. As identified in Article 9 of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)[12], “mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope”.  A mandatory national contractual law is one that either requires that a provision is deemed to be included in a contract or cannot be excluded in a contract.  Fundamental, in either case, is that the parties to the contract cannot derogate from the obligation.  Typically, an attempt to include or exclude a provision counter to the obligation is automatically deemed null and void. In some instances this may have the consequence of rendering the entire contract unenforceable.

It follows that laws that apply to contracts but are of a lesser degree – they are “recommended” or regarded as “industry benchmark” can be derogated and so are not technically mandatory.  However, in describing the case study, the European Commission identifies in the approach to the legal research that this should include “examination of whether parties to a contract can limit or exclude the application of the identified civil law provisions (mandatory nature)”.

In addition, it is foreseeable that there is a grey area.  For example, there may be a government issued best-practice guideline. While in theory a market participant could decide not to abide by the best-practice guideline (and so perhaps not include a contractual provision that is recommended), the consequences for not pursuing the government guideline recommendation may be such that for all practical purposes it is treated as mandatory law, and can referred to as so-called ‘soft laws.

Questions that could be addressed

Do EU Member State national laws impose a positive or negative obligation on businesses and consumers in agreements as regards the sharing economy (mandatory laws)?

To the extent mandatory laws differ between EU Member States, do they create problems or obstacles, for example, due to differences in definitions or treatment of elements of the sharing economy?

Are any such mandatory laws inconsistent with EU law, including the principles of the Single Market?

Are there mandatory laws that apply to the sharing economy but not to a business outside the sharing economy, even though the activity the subject of the contract in both cases is arguably of the same or similar nature?

Are there mandatory laws that apply to business generally but do not apply to the sharing economy, even though the activity the subject of the contract in both cases is arguably of the same or similar nature?

Following from questions 4 and 5, does the situation result in a distortion to the economy, for example, because it favours business being undertaken in one form rather than another?

If the EU does identify the need for and make changes to the laws of the EU Member States, will the policy and rule-setting influence the EU has on the global regulatory environment lead to changes in other countries?

Even if this does not result in other countries changing their laws, will global businesses active in the sharing economy decide it is more efficient to adopt a single set of global rules for their agreements that are consistent with the EU rules?

***

[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions; 2 June 2016; COM(2016) 356 final.

[2]file:///C:/Users/bebxtaxksai/Downloads/Analytical%20paper%20on%20liability%20issues%20in%20the%20short-term%20accommodation%20rental%20sector%20in%20Barcelona,%20Paris%20and%20Amsterdam.pdf .  Additionally, there are three papers addressing market access in this sector (https://ec.europa.eu/growth/single-market/services/collaborative-economy_en ).

[3]file:///C:/Users/bebxtaxksai/Downloads/Analytical%20paper%20on%20liability%20issues%20in%20the%20professional%20services%20sector%20in%20Brussels%20Barcelona%20and%20London.pdf

[4] Study on the assessment of the regulatory aspects affecting the collaborative economy in the tourism accommodation sector in the EU (2018)

[5] Study to monitor the business and regulatory environment affecting the collaborative economy in the EU (2018)

[6] Study to monitor the economic development of the collaborative economy at sector level in the 28 EU Member States (2018)

[7] Platform workers in Europe (2018)

[8]Per summary of conference:

https://ec.europa.eu/docsroom/documents/32061

[9] https://ec.europa.eu/info/sites/info/files/communication-shaping-europes-digital-future-feb2020_en_4.pdf

[10] Centre for European Policy Studies, Task Force, ‘Europe’s Collaborative Economy – Opportunities and responsibilities in an evolving digital ecosystem’, draft study, 24 March 2020.

[11] Call for tenders No JUST/2020/PR/03/0001 Framework Contract for services Lot 2: Legal analysis services, including compliance assessment of national transposing measures, in the Justice and Consumer policy areas https://ted.europa.eu/udl?uri=TED:NOTICE:52527-2020:TEXT:EN:HTML

[12] https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32008R0593

[13] Centre for European Policy Studies, Task Force, ‘Europe’s Collaborative Economy – Opportunities and responsibilities in an evolving digital ecosystem’, draft study, 24 March 2020.

[14] Call for tenders No JUST/2020/PR/03/0001 Framework Contract for services Lot 2: Legal analysis services, including compliance assessment of national transposing measures, in the Justice and Consumer policy areas https://ted.europa.eu/udl?uri=TED:NOTICE:52527-2020:TEXT:EN:HTML

[15] https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32008R0593